Christmas and office party expenses have two aspects to consider when paid through the company:
- An expenses that is deductible against corporation tax
- A benefit in kind charge for the employee (BIK)
Christmas and other office parties are an allowable expenses for the costs of the employee/s and their spouse against corporation tax, providing that the party was 'open' to all employees to attend. The cost for anyone who is not an employee is non- allowable against corporation tax as it is business entertainment.
As a director of a limited company, you are an employee.
A total of up to £150 may be claimed for each employee
and non-employee (spouse) annually. This may include the associated costs of
providing the party such as transport to the venue, food and accommodation.
This £150 is not an ‘allowance’ it is a ceiling limit
for the actual cost.
Where there is more than one party per annum, so long
as the total cost per head does not exceed £150 (including all the associated
costs of providing the party) then the expenses are allowable and no BIK charge
will apply. Anyone who is not an
employee will not have a BIK charge.
Example one:
Two functions were provided for all employees to
attend. The first function cost £90 per person and the second cost £45 per
person. Both functions may be claimed. No benefits in kind are incurred by the
employee.
Example Two:
Two functions were provided for all employees to
attend. The first function cost £85 per head and the second cost £75 per head.
The total cost of £160.
Only one of the function expenses may be claimed.
Either one of them may be claimed, but it would be more beneficial to claim the
first one which incurred the greater expense.
The employee would incur a benefit in kind charge, tax
and Class 1a NICS on the whole amount of £75.
If a function is provided and the cost is over £150 per
head then the employee would be charged tax and Class 1a NICS on the whole
amount.
From a VAT and corporation tax perspective, the total
amount, even over £150 may be claimed because the function is not classed as
entertainment.
The £150 ceiling limit relates to whether a charge of
tax and Class 1 A NICS will be applied under the benefits in kind rules.